BELIZE ATLANTIC BANK SMALL LOANS 7.5% advertised but claimed to be 18% in real world.

ATLANTIC BANK GIVING SMALL LOANS AT 7.5% INTEREST RATE UNSECURED.

Noticed a sign in Atlantic Bank yesterday that was advertising small loans at 7.5% My C.D.´s are dropping to 4%. The loans at the bank are cheaper than at the LOCAL Credit Union right now. My credit union in the USA is only paying 1/2 of 1% interest on my savings account.

CONTRIBUTION FROM DEBATING LISTSERVE

"Ray, those loans are not amortized, meaning that you don’t pay interest on a declining balance, you pay interest on the entire amount, which means a 7.5% loan is really something like 18%."

- small bank loans are really 18% in the real world.-

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Ray:

Let's plug in some real numbers so you can see what Mary was talking about.

To calculate a non-amortized loan, you take the principal amount of the loan and multiply it by the interest rate. For example, if Atlantic Bank were offering you a $100,000 loan at a fixed rate of 7.5%, this would yield $7,500 per year in interest. If this were a 10-year loan, the total interest charge would be $75,000. That is the cost of the loan. The monthly interest payment would be $75,000 / 120 months = $625.00, and the total monthly payment would be $1,458.33.

If the bank were to offer you an amortized loan for the same amount for the period at the same interest rate, your monthly payment would be $1,187.02, a monthly difference of $271.31. Your monthly interest would start of at $625.00 in the first month of the loan and gradually reduce to $7.37 in the last month of the loan. Your total interest over the life of the loan would be $42,442.12, a whopping $32,557.88 less than the non-amortized loan.

So Mary was on the right track but a bit off on her estimate of the actual interest rate. If you paid a total of $75,00 in interest on a $100,000 amortized loan over a period of 10 years, the interest calculates to approximately 12.4%, not 18%.

Steve
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JAGUAR CAPITAL MANAGEMENT IS GOING TO END MARCH AT A STOCK PRICE OF .74 CENTS. STARTED THE YEAR AT .73 CENTS, HIT A HIGH OF .76 CENTS IN FEBRUARY. BY END OF MARCH,THE FIRST QUARTER, RATE OF RETURN WILL BE +3% SO FAR, 2012.